Wednesday, September 15, 2010

UPDATE:
For some reason I had it in my head that Allianz Re had issued some cat bonds this year and the original post was headlined "Allianz Re getting their ass handed to them as catastrophe bonds trade higher for ninth consecutive month". That was an error and I apologize to the Allianz BUYERS of the bonds. The first article even says "One of the largest buyers"
Here are the folks who SOLD the bonds:
as of May 18, 2010Catastrophe Bonds Year-to-Date and Pipeline (AIG; HIG)

I hope Re isn't buying their sister company's bonds, that would kinda defeat the purpose of re-insurance.

Original post:
The lack of landfalling hurricanes is good [rather -ed] for folks who bought the risk. And makes it appear that the re-insurers sold them a bit cheap. This is the second consecutive year that Cat bonds have shown such sweet total returns.

The New Zealand earthquake is going to hit the insurers but I can't think of any bonds that were exposed to that region/peril.

Allianz Re, one of the most important cat reinsurance buyers, has called for a greater array of perils to be covered by cat bonds.

“The cat bond market needs further diversification,” Clemens von Weichs, CEO of Allianz Re, told the Rendez-Vous Reporter. “The market is underserved. There are other events that can be covered by cat bonds, such as nat cat in eastern Europe, Asia and Australia....MORE

From Bloomberg:

From Bloomberg (Sept. 7, the index is updated on Fridays, it was up a tad more as of Sept. 10):

Catastrophe bonds, used by investors to bet against natural disasters, climbed for an eighth straight week as Hurricane Earl and Tropical Storm Fiona subsided.

The Swiss Re Cat Bond Price Return Index rose 0.4 percent to 96.1 on Sept. 3. The benchmark, which prices every Friday, has advanced every week since mid-July as forecasters scaled back predictions for the hurricane season.

Earl, once a powerful Category 4 system, weakened off the U.S. Atlantic coast and was downgraded to a tropical storm Sept. 3 as Fiona, to the southeast, slowed to a tropical depression. Earl later made landfall in Nova Scotia, causing power outages.
“At least for this group of storms, there isn’t much cause for concern,” said Brett Houghton, a fixed-income trader at Rochdale Securities LLC. “Earl wasn’t an issue and Fiona was projected not to be a threat to the eastern coast.”

The U.S. Climate Prediction Center cut its forecast on Aug. 5 for the hurricane period to a range of 14 to 20 named storms, down from 14 to 23 on slower-than-expected activity in the first two months of the season. The center said in May that the June- through-November storm season may be “extremely active,” boosted partly by La Nina, a weather pattern that reduces high- altitude winds, which impede Atlantic storm development.

Insurers and reinsurers sell catastrophe bonds and use them to cover claims if a disaster strikes. The bonds gained a record 5.2 percent last year on a season that didn’t produce a named storm until Aug. 15. The securities also pay higher-than- benchmark interest rates to investors who risk losing their principal in the event of a disaster that meets pre-defined conditions.
Prices Rise

“After September last year, we saw pretty rapid increases in pricing,” Houghton said. “I don’t think we’ll see that to the same extent this year. Pricings have been generally increasing throughout the course of the year. We probably don’t have quite as much as gas in tank.” In 2009, the index gained 19 straight weeks beginning in July....MORE